DISALLOWANCE OF MARITAL DEDUCTION WHERE SPOUSE IS NOT CITIZEN OF UNITED STATES.

SEC. 5033. DISALLOWANCE OF MARITAL DEDUCTION WHERE SPOUSE IS NOT CITIZEN OF UNITED STATES. (a) Estate Tax.— (1) In general.— Section 2056 of the 1986 Code is amended by adding at the end thereof the following new subsection: “(d) Disallowance of Marital Deduction Where Surviving Spouse Not United States Citizen.— “(1) In general.— Except as provided in paragraph (2), if the surviving spouse of the decedent is not a citizen of the United States— “(A) no deduction shall be allowed under subsection (a), and “(B) section 2040(b) shall not apply. “(2) Marital deduction allowed for certain transfers in trust.— “(A) In general.— Paragraph (1) shall not apply to any property passing to the surviving spouse in a qualified domestic trust. “(B) Property passing outside of probate estate.— If any property passes from the decedent to the surviving spouse of the decedent outside of the decedent’s probate estate, for purposes of subparagraph (A), such property shall be treated as passing to such spouse in a qualified domestic trust if such property is transferred to such a trust before the day on which the return of the tax imposed by section 2001 is made. “(3) Allowance of credit to certain spouses.— If— “(A) property passes to the surviving spouse of the decedent (hereinafter in this paragraph referred to as the ‘first decedent’), “(B) without regard to this subsection, a deduction would be allowable under subsection (a) with respect to such property, and “(C) such surviving spouse dies and the estate of such surviving spouse is subject to the tax imposed by section 2001, the Federal estate tax paid (or treated as paid under section 2056A(b)(6)) by the first decedent with respect to such property shall be allowed as a credit under section 2013 to the estate of such surviving spouse and the amount of such credit shall be determined under such section without regard to when the first decedent died.” (2) Treatment of qualified domestic trust.— Part IV of subchapter A of chapter 11 of the 1986 Code is amended by inserting after section 2056 the following new section: “SEC. 2056A. QUALIFIED DOMESTIC TRUST. “(a) Qualified Domestic Trust Defined.— For purposes of this section and section 2056(d), the term ‘qualified domestic trust’ means, with respect to any decedent, any trust if— “(1) the trust instrument requires that all trustees of the trust be individual citizens of the United States or domestic corporations, 102 STAT. 3671 “(2) the surviving spouse of the decedent is entitled to all the income from the property in such trust, payable annually or at more frequent intervals, “(3) such trust meets such requirements as the Secretary may by regulations prescribe to ensure the collection of any tax imposed by subsection (b), and “(4) an election under this section by the executor of the decedent applies to such trust. “(b) Tax Treatment of Trust.— “(1) Imposition of estate tax.— There is hereby imposed an estate tax on— “(A) any distribution before the date of the death of the surviving spouse from a qualified domestic trust other than a distribution of income required under subsection (a)(2), and “(B) the value of the property remaining in a qualified domestic trust on the date of the death of the surviving spouse. “(2) Amount of tax.— “(A) In general.— In the case of any taxable event, the amount of the estate tax imposed by paragraph (1) shall be the amount equal to— “(i) the tax which would have been imposed under section 2001 on the estate of the decedent if the taxable estate of the decedent had been increased by the sum of— “(I) the amount involved in such taxable event, plus “(II) the aggregate amount involved in previous taxable events with respect to qualified domestic trusts of such decedent, reduced by “(ii) the tax which would have been imposed under section 2001 on the estate of the decedent if the taxable estate of the decedent had been increased by the amount referred to in clause (i)(II). “(B) Tentative tax where tax of decedent not finally determined.— “(i) In general.— If the tax imposed on the estate of the decedent under section 2001 is not finally determined before the taxable event, the amount of the tax imposed by paragraph (1) on such event shall be determined by using the highest rate of tax in effect under section 2001 as of the date of the decedent’s death. “(ii) Refund of excess when tax finally determined.— If— “(I) the amount of the tax determined under clause (i), exceeds “(II) the tax determined under subparagraph (A) on the basis of the final determination of the tax imposed by section 2001 on the estate of the decedent, such excess shall be allowed as a credit or refund if claim therefore is filed not later than 1 year after the date of such final determination. “(3) Tax imposed where trust ceases to qualify.— If any person other than an individual citizen of the United States or a domestic corporation becomes a trustee of a qualified domestic102 STAT. 3672 trust (or such trust ceases to meet the requirements of subsection (a)(3)), the tax imposed by paragraph (1) shall apply as if the surviving spouse died on the date on which such person became such a trustee or the date of such cessation, as the case may be. “(4) Due date.— The estate tax imposed by paragraph (1) shall be due and payable on the 15th day of the 4th month following the calendar year in which the taxable event occurs. “(5) Liability for tax.— Each trustee shall be personally liable for the amount of the tax imposed by paragraph (1). Rules similar to the rules of section 2204 shall apply for purposes of the preceding sentence. “(6) Treatment of tax.— For purposes of section 2056(d), any tax paid under paragraph (1) shall be treated as a tax paid under section 2001 with respect to the estate of the decedent. “(7) Lien for tax.— For purposes of section 6324, any tax imposed by paragraph (1) shall be treated as an estate tax imposed under this chapter with respect to a decedent dying on the date of the taxable event (and the property involved shall be treated as the gross estate of such decedent). “(8) Taxable event.— The term ‘taxable event’ means the event resulting in tax being imposed under paragraph (1). “(c) Definitions.— For purposes of this section— “(1) Property includes interest therein.— The term ‘property’ includes an interest in property. “(2) Income.— The term ‘income’ has the meaning given to such term by section 643(b). “(d) Election.— An election under this section with respect to any trust shall be made by the executor on the return of the tax imposed by section 2001. Such an election, once made, shall be irrevocable.” (3) Clerical amendment.— The table of sections for part IV of subchapter A of chapter 1 of the 1986 Code is amended by inserting after the item relating to section 2056 the following new item: “Sec. 2056A. Qualified domestic trusts.” (b) Gift Tax.— Section 2523 of the 1986 Code is amended by adding at the end thereof the following new subsection: “(i) Disallowance of Marital Deduction Where Spouse not Citizen.— If the spouse of the donor is not a citizen of the United States— “(1) no deduction shall be allowed under this section, “(2) section 2503(b) shall be applied with respect to gifts made by the donor to such spouse by substituting ‘$100,000’ for ‘$10,000’, and “(3) the principles of sections 2515 and 2515A (as such sections were in effect before their repeal by the Economic Recovery Tax Act of 1981) shall apply, except that the provisions of such section 2515 providing for an election shall not apply.” (c) Estates of Nonresidents Who Are Not Citizens but Have Citizens as Spouses.— Subsection (a) of section 2106 of the 1986 Code is amended by adding at the end thereof the following new paragraph: “(3) Marital deduction allowed where spouse is citizen.— The amount which would be deductible with respect to property situated in the United States at the time of the decedent’s death under the principles of section 2056.” (d) Effective Date.— 102 STAT. 3673 (1) The amendments made by subsections (a) and (c) shall apply to estates of the decedents dying after the date of the enactment of this Act. (2) The amendments made by subsection (b) shall apply to gifts on or after July 14, 1988.